While 2020 has impacted our finances in more ways than one, some consumers may still be considering purchasing big ticket items especially as we approach the end of the year and holidays. If you’ve been saving up, you might be looking at purchasing a new home or car, or you might be looking to generate a steady flow of income by investing in, fixing up, or renting out property. But is now the time to do so? Here’s why making a big-ticket purchase may not be such a good idea.
Buying a New Home
Working from home (while everyone else you live with is also home) may have you itching to buy a new space to accommodate your needs. Indeed, it seems like everywhere you turn, people are scooping up their dream homes. And if you’re a first-time homebuyer, retiring and looking to downsize, or moving elsewhere for a job, buying a new house may be beneficial to you.
Otherwise, should you be scouting out your next place to live? Not so fast, says Chatterton & Associates’ Rob Chatterton: “Interest rates are extremely low, so from that perspective, it’s great.” But he warns that home prices are overvalued. With mortgage rates being historically low, prospective home buyers are able to afford more than they might have been able to otherwise, so it may not be a good financial decision.
Plus, you’ll want to consider the additional costs of home buying. When you think of associated costs – including closing costs, property taxes, potential repairs, insurance, HOA fees, and more – buying a home might be more of a liability than an asset. Unless you’re buying a smaller home and investing in other property to generate income, the last thing you want to do is buy more than you can actually afford right now.
Investing in Property
Looking to invest to rent out your property and achieve steady income from renters or vacationers-by-rental? Before you do this, Chatterton says to look at the possible rate of return: If it’s less than 5%, you may not want to go this route. You might also want to do some thorough research as to how the area you’re looking to invest in has been impacted by the pandemic - if there’s been a lot of job loss with little sign of recovery, you may not get the renters (or steady stream of income) you’re hoping for.
Other Big-Ticket Items
If you’re not looking for new property, you may be wanting to upgrade what you already have. Most of these items, however, depreciate in value; for example, a new car’s value decreases around 20% to 30% by the end of the first year, according to NerdWallet.
Buying a New Car
If your current car is having problems or you’ve been eyeing an upgrade, it may seem like the time buy a vehicle as your daily commute begins again. But because new cars depreciate so quickly, making that purchase may not be the best financial decision. If you’re going to spend more fixing up your old car than what it’s worth, then yes, buying a car is necessary. Even then, Chatterton recommends trying to buy used.
Looking for Ways to Invest Your Money?
Ultimately, purchasing a big-ticket item is a financial decision that should be discussed with your financial advisor. The team at Chatterton and Associates would be happy to discuss your options to make sure that whatever purchases you are considering making aligns with your long-term plans.
If you’re looking for ways to improve your cash flow, manage your investments, or reduce taxes, we can help there too. Contact us today and let us know how we can help you reach your financial goals.
The Team at Chatterton & Associates
Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss. Past performance is no guarantee of future results. Please note that individual situations can vary. Therefore, the information presented here should only be relied upon when coordinated with individual professional advice.